Easy and Simple Tax Planning Strategies

December is here and for most of us that means tax season is just around the corner.  Speaking to your accountant about tax strategies to do throughout the year is best, however; it’s not too late to avoid a tax bill or increase your refund in 2019.  There is still time!

The Tax Cuts and Jobs Act (TCJA ) that passed at the end of 2017 is officially in place and will affect your 2018 tax return due in 2019.  Many of you probably noticed an increase in your paycheck.  What came along with this tax change are over 100 new tax laws.  That’s right, OVER 100!  The good news is that many of the older provisions are still in place. 

There are still a handful of simple and easy ways to reduce your tax bill or increase your tax refund.  Of course, the later is ideal! 

INDIVIDUALS:

Itemized Deductions:

How do you know if you itemize your deductions or take the standard deductions?  If Line 40 of last year’s Form 1040 Individual Tax Return ends with a number other than 0, you itemized your deductions.  Also, your tax return should include a form called Schedule A.

Many of you who are used to itemizing your deductions might end up claiming the standard deduction for 2018. 

Here’s why:

• The standard deduction nearly doubled to $12,000 for single filers and $24,000 for married couples

• Personal exemptions are suspended and many of the most utilized itemized deductions have been eliminated or limited

• State and local income and sales tax deduction is limited to $10,000

Here’s what to do:

• Medical expenses could be a determining factor in itemizing so total your medical expenses now and schedule any last minutes appointments in December if you are close to reaching the threshold

  • Unreimbursed medical expense threshold is 7.5% of your adjusted gross income (AGI) in 2017 and will remain so in 2018; in 2019 the threshold is 10%

    • If your AGI is $150,000, every dollar over $11,250 (7.5% of $150,000) is deductible in 2018

    • Medical expense examples include payments to doctors, dentists, glasses, contacts, hearing aids, supplies, diagnostic devices, prescriptions drugs, and travel expenses related to medical care.

• Charitable giving AGI limits increased so keep on giving

  • Deductions for charitable contributions cannot exceed 60% of your AGI; a reduced limit of 30% and 20% for certain contributors; contributions exceeding 60% can be carried forward and deducted for up to five years

  • Donations records should include cash amounts, official charity receipts, canceled checks, value of donated property, miles driven, and out-of-pocket expenses

Defer and Offset Capital Gains

What’s a Capital Gain?  If you invest in stocks, bonds, or property and sell your investment for a profit, you are taxed on the sale. 

• Take capital gains next year if you expect to be in the same or lower tax bracket in 2019

  • Do not defer capital gains if you expect higher income in 2019 tax year as taxes are expected to be greater

• More importantly for high-income tax payers, selling under performing investments to realize losses will offset taxable gains during the year

  • Up to $3,000 of excess losses can usually be used to offset ordinary income and can be carried forward

Contribute to Retirement Accounts

•  The deadline for certain retirement accounts are after December 31st so talk to your retirement advisor now

• Many retirement plans allow you to contribute up until October 15, 2019  if you file an extension for your 2018 tax return

SMALL BUSINESSES:

Defer Income and Accelerate Expenses: ONLY if you anticipate the same or lower tax bracket next year

Here’s how for cash method accounting businesses:

• Delay invoices until late December so payment comes in 2019

• Accelerate deductible expenditures so expenses are taken in 2018

  • You can claim 2018 expenses on your credit card bill even if you won’t pay it off until 2019

  • Pay expenses via checks and mail them before year-end

If you anticipate more income, do the opposite by postponing deductible expenditures until 2019 and accelerate income into this year.

Purchase New and Used Property

• Property acquired and placed in service in 2018 might be able to write off the entire cost

  • This may also be the case of new and use heavy vehicles used for over 50% business

  • Specifically, for SUV, pickup, or van’s with a manufacturers gross weight vehicle (GVWR) above 6,000 pounds

Maximize the Qualified Business Income (QBI) Deduction

• To qualify you must be a pass-through entity which is defined for this deduction as single member LLC sole proprietorships, multi-member LLC partnerships, and S Corporations.

  • It is only available to non-corporate taxpayers

• The deduction can be up to 20% of the pass-through entities QBI

• This is a “below-the-line deduction” which means it reduces taxable income

• There are several layers of complexity to this deduction; your tax-pro can determine if you qualify

Contribute to or Establish a Retirement Accounts

•  Most retirement accounts allow for significant deductible contributions

  • Deadlines for setting a SEP-IRA for a sole proprietorship is October 15, 2019  if you file an extension for your 2018 tax return

  • Other types of retirements usually must be established by December 31st

  • Simple IRA’s must be established by October 1 so you have missed the deadline for 2018

There are many other ways to increase your refund or eliminate your tax bill.  Call me today to schedule a free consultation!  Let’s make sure you are covered for the 2018 tax year!